Financial crisis, cuts, riots and hacking – short-term events are dominating politics at every turn. But with three and a half years to run until a likely 2015 election, Ed Miliband faces a marathon not a sprint. He needs to raise his eyes to the horizon. His challenge is to massively extend Labour's electoral reach while also rediscovering the radicalism and ambition that lies at the party's heart.

Labour must remake an aspirational, confident case for social democratic values in a way that speaks to a broad electoral base rather than just to ourselves. The Fabian intellectual tradition can make a vital contribution to this optimistic future vision, notwithstanding the criticism we have received from within the left of late. For Labour needs to reinvent and set out afresh the two most enduring Fabian principles: the case for equality and the case for state action.

To return to majority government Labour must convince the anti-Tory majority – and particularly disaffected Lib Dem voters – that Labour offers a home of principle not just convenience. Our new ambition must be to forge a political economy where prosperity and equality are intrinsic to each other rather than the separate, competing goals Labour has often seen them to be over the last 20 years.

The starting point for this is the "squeezed middle". The upshot of thinking about prosperity and equality in separate boxes was to neglect the prosperity of ordinary, middle earners. On Labour's watch the economy grew by 27% until the recession hit but middle earners ended up only 15% better off. Labour's offer should be sustainable growth that delivers prosperity for Britain's bottom 90%, not just the vested interests.

We should promise to measure our success by two yardsticks and explicitly say that for us, and for the prosperity of the majority of Britons, they matter far more than GDP. The first standard must be rising middle incomes. To give real edge to "the squeezed middle" critique, Ed should announce that real median earnings will be Labour's indicator of national economic success. The second measure is inequality between the top and the bottom. In principle this may be a harder sell to the pragmatic British public, but not if it is presented in terms of preventing ever wider disparities between bosses' pay, ordinary living standards and low wages. Labour should promise it will never again tolerate inequality moving in the wrong direction on its watch.

Saying "thus far and no further" to today's rampant levels of inequality would, in another time, seem like a timid measure from the mainstream centre-left. But today it will mean changing the political weather. Our ambition must be to take on and win the argument that, for the sake of a balanced economy and one-nation society, top pay should rise no faster than low incomes, that growth in the north should keep pace with the south, and that we should rebalance taxation away from earnings and towards wealth.

The coalition's centrist talk of balanced budgets, localism and the "Big Society" is for too many Conservatives just shallow cover for radically rolling back the state. Labour needs to take on this battle with a compelling long-term case for the role of state action in improving people's lives.

First the left needs to make a confident case for welfare spending, with a message that the welfare state is about "us not them". This would mean accentuating the elements of lifetime welfare spending that smooth spending over time or share risks we all may incur. Next we need to make the case for public action as the guarantor of "long-termism". The left must show that only state action is sufficient to resolve the big strategic challenges – pensions, housing, environmental degradation, public health and economic infrastructure.

To win again, we need to get the basics right, by moving on from our past and showing that we are ready to govern. But we also need to rebuild the emotional bonds we severed by painting a positive picture of Labour's world after 2015. We can do that by twinning equality with prosperity, and by remaking the positive case for state action for us all and for the long term.

• A longer version of this article is published this week in the September issue of The Fabian Review